WASHINGTON — Consumers stepped up their spending at retail stores last month, providing a boost to the economy in the early phases of the winter holiday shopping season.

Retail sales rose 0.7% in November, the Commerce Department said Tuesday, a solid increase and higher than October’s 0.5% gain. Sales jumped 2.6% at auto dealers, driving most of the gain. Some of that demand likely reflected a need for new cars in parts of the southeast slammed by Hurricane Helene in October, as well as healthy incentives provided by car dealers. Big discounts at many retail chains also attracted some consumers.

The boost in spending underscores that the economy is still growing at a healthy pace even with higher interest rates, a trend that could cause the Federal Reserve to lower borrowing costs more slowly next year than they have previously signaled. The Fed will announce its latest rate decision Wednesday.

At the same time, there were some signs of consumer caution, as sales at grocery stores, clothing shops, and restaurants fell. Outside of car dealers and online retailers, sales gains were modest.

“We ultimately expect this will be a decent holiday sales season for retailers,” Tim Quinlan, an economist at Wells Fargo, said in a note to clients. “It’s not going to knock anyone’s socks off in the wake of record pandemic gains, but continued consumer momentum means it’s unlikely to be overly weak either.”

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Economy Shows Steady Growth

The economy expanded at nearly a 3% annual pace in the July-September quarter and some economists forecast steady growth in the final three months of this year as well. There are some signs of sluggishness in the job market, as hiring has weakened since early this year, but layoffs are also relatively rare and the unemployment rate is at a low 4.2%. Paychecks are growing a solid 4% pace, on average nationwide, which is modestly faster than inflation and helps fuel more spending.

Sales rose modestly at stores selling furniture, electronics, and home and garden supplies. Since the retail sales report isn’t adjusted for inflation, some of the increase reflects higher prices. Sporting goods stores reported a 0.9% gain. Sales at online retailers jumped 1.8%.

Spending at restaurants and bars, meanwhile, dropped 0.4%, a sign that consumers did pull back in one discretionary category. Grocery store sales also dipped 0.2%.

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Federal Reserve’s Next Move

On Wednesday, the Fed is expected to cut its key rate for a third time this year, after a big half-point cut in September and a quarter-point last month. But Fed officials, led by Chair Jerome Powell, are also expected to signal that they may reduce their rate only two or three times next year, leaving it far above its pre-pandemic level, when rates on mortgages, auto loans, and credit cards were much slower.

The retail sales report comes as retailers are stepping up deals and other perks to get shoppers into their stores for the crucial final stretch before Christmas.

Holiday Shopping Season Outlook

Analysts envisioned a solid holiday shopping season, though perhaps not as robust as last year’s, with many shoppers under pressure from still-high prices despite the easing of inflation. Overall, retailers had a decent start to the unofficial kickoff to the holiday shopping period despite lots of discounts and sales that started as early as October.

Adobe reported earlier this month that “cyber week” — the five-day period from Thanksgiving to Cyber Monday — brought in $41.1 billion online overall, up 8.2% from the year-ago period. Adobe expects full holiday season sales — Nov. 1 to Dec. 31 — to hit $240.8 billion, up 8.4% compared to a year-ago. And Mastercard SpendingPulse, which tracks in-person and online spending, reported that overall Black Friday sales excluding automotive rose 3.4% from a year ago.

This year, retailers are feeling more pressure since there are five fewer days between Thanksgiving and Christmas. Moreover, the presidential election caused some distraction from shopping, sending sales of general merchandise down 9% in the two weeks ended Nov. 9, according to Circana, a market research group.

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Sales have been rebounding but stores will still have to make up for those losses. But there are big shopping days ahead. In the United States, the top 10 busiest shopping days account for about 30% to 40% of all holiday retail traffic, according to Sensormatic Solutions, which tracks foot traffic at retail stores. And six of the top ten busiest days during the holiday season are still ahead, including the day after Christmas, Sensormatic noted.

Spencer Jordan, senior vice president of leasing at Easton Town Center in Columbus, Ohio, said that foot traffic is unchanged from a year ago, but sales are up.

There were steady crowds over the weekend at the Newport Centre Mall in Jersey City, New Jersey, anchored by Macy’s and Kohl’s, with huge discounts being offered at a number of them.

Abraham Ferreyra and his wife purchased two coats Sunday that were on sale for $15 each and said they plan to cut spending on gifts.

“We have a mortgage to pay,” he said. “So we can’t be giving too much.”